Treasury is stepping up pressure following a series of weapons tests

WASHINGTON—The Obama administration warned foreign banks that they will face U.S. sanctions or fines for doing business with North Korea, a move that turns up the pressure on Pyongyang but raises the specter of direct economic conflict with China.

Responding to an increasingly ambitious spate of North Korean arms tests that began with a nuclear detonation in January, the U.S. Treasury Department on Wednesday designated the insular communist country a “primary money laundering concern,” invoking a provision of the Patriot Act....